Is vacation home rentals the optimal rental strategy for real estate investors? Stick around to find out!
If you have a vacation home that is sitting there empty most of the year, renting it out would be a great venture. So, what is it about vacation home rentals that made so many investors turn on to it?
Related: Vacation Home Rentals: Real Estate Investing Made Easy
For many investors, vacation rentals have been a great strategy for making money in real estate. While for others, it was a nightmare they wanted to get away from. For you, determining whether vacation home rentals is a good investment depends on your understanding of the strategy itself. One thing is for sure: vacation rentals are different from traditional rentals. So, keeping that in mind allows us to go into more details concerning this strategy.
In reality, there are a few factors that make vacation rentals one of the worst or best real estate investments. Here is what we mean:
Why are vacation home rentals the worst real estate investments?
The number one factor that makes vacation rentals the worst investment strategy is its location. Sure enough, when you are looking into a location for buying an investment property for vacation rentals, a beach is the first that comes to mind. So, what is the problem with that? Natural disasters! No matter what region you choose in the United States, every beach location is prone to natural disasters. Therefore, it is not a matter of if it happens, but rather a matter of when it happens. In this case, it would be a good idea to shop for a proper insurance policy.
Another problem with vacation home rentals is the cash flow. Vacation rentals are far from being low risk investments. Why? Because 1) it takes a lot of financial resources to finance due to its location, and 2) it takes time until it starts to generate a good cash flow rate. Bear in mind, beach houses are not that cheap in the real estate market. Therefore, in order to break even on a million dollar rental property, you would have to make $40,000 a year.
One more thing, you must take taxes into account as well. In all real estate markets, the tax rate a real estate investor pays depends on the value of the investment property. Therefore, the higher the property price, the higher the tax rate you are expected to pay. Thus, in many states, different tax deductions apply to rental properties. So, you might want to check with your state’s laws regarding this matter.
Why are vacation home rentals the best real estate investments?
As there are downfalls to this type of real estate investment strategies, there are also advantages to it. Investing in vacation home rentals is the best when you manage to actually pick the right location. Locations with the highest tourism rates are outstanding for this type of real estate investing. After all, your goal with this investment property is to sustain a high occupancy rate. This, in return, will contribute to boosting your rental income.
For many real estate investors, it has been the optimal rental strategy especially after the foundation of Airbnb rentals. Airbnb is basically one of the few vacation rentals’ platforms that connect investors and ordinary people with travelers looking for cheap accommodations for their trips. That is what we will be addressing, later on. But before we go there, what is it that you want to look at for the most profitable vacation home rentals?
What to take into account when investing in vacation home rentals
Investment properties are meant to help you make money. Therefore, when buying an investment property, picking a profitable one is in your best interest. So, in order to do that, you want to learn all about the investment property analysis in addition to the real estate market analysis. These types of analyses are meant to scan an investment property as well as its location. Based on the different figures you get out of it, you can decide whether a certain investment property is a fit for your goals.
Same with vacation home rentals. Your goal is to buy the most profitable vacation home. Therefore, analyzing the property before buying it is the way to go.
Related: What’s the Average Return on Investment in the US Real Estate Market?
How to boost your income from vacation home rentals
Vacation rentals are a great opportunity for an investor to get creative. As it heavily depends on marketing, here are some tips to boost your income with this particular strategy:
Tip #1: Photography
We all know that photography is the biggest marketing tool especially when it comes to vacation home rentals. If you are not into photography, then hire a professional. He/she will know how to sell a lifestyle through photos, which is what you need; you are marketing a lifestyle rather than the property itself.
Tip #2: Use your words
This is the part where you want to turn into a poet. Well, not quite literally. But, make sure your words are highlighting an extraordinary experience. It might be an astonishing view, extraordinary activities, or even attractive annual celebrations. Really, it all comes down to your creativity in describing your vacation home rentals.
Tip #3: Pricing
Even though every property is unique, you will still have to perform comparative market analysis. This means that you will have to look at similar rental properties in that area to decide how much to charge for rent. Keep in mind, you want a reasonable price that is neither too low or too high for that particular area.
Tip #4: Use multiple platforms
Using multiple platforms for marketing your vacation rentals is advised. This allows for maximum exposure and increases your odds of renting out your property. Use sites like Airbnb (which we’ll be addressing next), VRBO and Home Away.
Airbnb and vacation home rentals
As we have mentioned, Airbnb is an online platform that connects people with available spaces and others who are looking to rent these spaces. Therefore, in order to expose your Airbnb properties to these people, all you have to do is visit the Airbnb website and start listing your properties. By providing descriptions and information as well as pictures of your property, your properties are automatically exposed. Once you have done that, it is a matter of time until Airbnb guests start to book your vacation homes.
With that being said, we are left with two aspects that we have to address. First, the Airbnb service fees. Both Airbnb hosts and guests are charged for every booking process. Second, the Airbnb property management which also costs money to do if you are going to hire a super host on Airbnb to do that for you. However, it is up to you to decide what to do after analyzing your Airbnb rental income.
Related: Real Estate Investments in Airbnb Miami Beach in 2018
To learn more about Airbnb rentals, make sure you check Mashvisor’s blog.